Gold stabilizes as easing Middle East tensions improve market sentiment.
A softer US Dollar offers support, but higher-for-longer interest rate expectations limit upside.
Technically, bearish momentum remains in place as XAU/USD struggles below the Bollinger midline near $4,500.
Gold (XAU/USD) shows signs of stabilization on Tuesday, supported by a softer US Dollar (USD) and lower Oil prices as signs of de-escalation in the Middle East war improve market sentiment.
At the time of writing, XAU/USD is trading around $4,339, little changed on the day after falling to its lowest level in nearly two and a half months on Monday.
US President Donald Trump said negotiations with Iran are in the "final throes" and that an agreement could be reached within days. "We're in the final throes of what will be a very, very good deal," Trump told reporters on Tuesday. He added that the Strait of Hormuz would reopen as soon as a deal is finalized.
The comments added to optimism after Iran and Israel agreed to halt strikes following weekend hostilities.
However, Gold is struggling to capitalize on the softer US Dollar as growing expectations that the Federal Reserve (Fed) could keep interest rates higher for longer continue to weigh on the non-yielding metal.
The next hurdle for Gold: US inflation
Traders are staying on the sidelines ahead of the US Consumer Price Index (CPI) report due on Wednesday.
Inflation has drifted further away from the central bank's 2% target, as higher Crude Oil prices following the outbreak of the war in the Middle East in late February have added to inflationary pressure. Annual CPI rose to 3.3% in March and 3.8% in April, with economists expecting a further increase to 4.2% in May.
A stronger-than-expected reading would cement bets on a rate hike later this year and increase pressure on Gold, which tends to perform well in a low-interest rate environment. In contrast, a softer inflation reading could allow the Fed to remain patient and trigger a short-term rebound in the precious metal.
Still, gains may be capped as markets remain convinced that interest rates will stay elevated for longer, unless a US-Iran agreement leads to a sustained decline in Oil prices and eases inflation concerns.
Technical analysis: XAU/USD stabilizes, but the technical picture remains fragile
On the daily chart, XAU/USD remains in a broadly bearish configuration, holding below the 20-period Bollinger Simple Moving Average at roughly $4,498 while only marginally above the lower band near $4,317, suggesting price is pressed against downside volatility support. The Relative Strength Index (RSI) hovers around 36, pointing to weak, bearish-leaning momentum, while the Average Directional Index (ADX) near 29 hints that the prevailing downtrend retains moderate strength.
On the upside, initial resistance emerges at the Bollinger middle band around $4,498, with a further cap at the upper band near $4,680 if buyers attempt a corrective bounce. On the downside, immediate support is seen at the Bollinger lower band around $4,317, and a break below this area could expose the next horizontal floor near $4,100, where buyers may again try to stem the decline.
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